• Alex Pettee, CFA

Mall Earnings • Apartment Rents Rise • REIT Earnings Updates

Summary

  • U.S. equity markets rebounded Tuesday as another wave of strong corporate earnings reports offset continuing COVID concerns ahead of a busy slate of employment data beginning tomorrow with ADP payrolls.

  • Following declines of 0.2% on Monday, the S&P 500 rebounded by 0.8% today while the Mid-Cap 400 gained 0.6% and the Small-Cap 600 rose 0.7%.

  • Real estate equities were mostly higher today ahead of the busiest 48-hour stretch of earnings season as the Equity REIT Index gained 0.1% with 10-of-19 property sectors in positive territory.

  • Centerspace (CSR) rallied nearly 1.5% today after reporting strong results as rents across the nation - including CSR's Midwest markets - continue to soar. CSR achieved a 10% rent spread on new leases in Q2.

  • Simon Property (SPG) gained 2.5% after providing upbeat earnings results, raising both its full-year guidance and its dividend. SPG, however, reported dismal leasing spreads -21.8% in Q2 - by far the worst quarter in the company's history.

Real Estate Daily Recap

U.S. equity markets rebounded Tuesday as another wave of strong corporate earnings reports offset continuing COVID concerns ahead of a busy slate of employment data beginning tomorrow with ADP payrolls. Following declines of 0.2% on Monday, the S&P 500 rebounded by 0.8% today while the Mid-Cap 400 gained 0.6% and the Small-Cap 600 rose 0.7%. Real estate equities were mostly higher today ahead of the busiest 48-hour stretch of earnings season as the Equity REIT Index gained 0.1% with 10-of-19 property sectors in positive territory while Mortgage REITs gained 0.1%.

The bid for risk-free bonds remained relentless today despite the equity market rally as the 10-Year Treasury Yield remained flat at 1.18% today, on the cusp of the lowest levels since February. Ten of the eleven GICS equity sectors were higher today, led to the upside by the economically-sensitive Energy (XLE) and Industrial (XLI) sectors. Homebuilders and the broader Hoya Capital Housing Index were among the leaders again today following strong earnings results and positive housing market commentary from homebuilding products suppliers Louisiana Pacific (LXP) and Trex Companies (TRTX).

Real Estate Earnings Updates

Last week, we published Beat & Raise: Earnings Halftime Report. The REIT earnings frenzy intensifies further in the week ahead with more than 100 REITs reporting Q2 results including the full-slate of mall and hotel REIT reports and results from most of the remaining small-cap REITs. As discussed in our Real Estate Earnings Preview, notable reports we'll be watching this afternoon are a trio of storage REITs - Public Storage (PSA), Life Storage (LSI), and National Storage (NSA); four healthcare REITs - HealthPeak (PEAK), Healthcare Trust of America (HTA), Global Medical (GMRE), Community Healthcare (CHCT), and a pair of hotel REITs - Host Hotels (HST), and Sunstone (SHO).

Apartment: Centerspace (CSR) rallied nearly 1.5% today after reporting strong results as rents across the nation - including CSR's Midwest markets - continue to soar. Making it ten-for-ten in the apartment REIT sector, CSR raised both its full-year NOI and FFO growth outlook, powered by a 10% spread on new leases. CSR raised its FFO growth outlook by 690 bps to 2.1%, up from its prior outlook which called for a decline of 4.8%. Bluerock Growth (BRG) rounds out apartment REIT results on Thursday morning.

Mall: Simon Property (SPG) gained 2.5% after providing upbeat earnings results, raising both its full-year guidance and its dividend. SPG boosted its full-year FFO growth outlook by 1,100 bps up to 18.0% which - if achieved - would put its FFO back within 10% of 2019-levels. Simon also boosted its dividend by 7.1% sequentially to $1.50/share. While the guidance was certainly encouraging and occupancy rates appear to be stabilizing, the rental rates achieved on new and renewal leases continue to slide. SPG reported a comparable spread of -21.8% in Q2 - by far the worst quarter in the company's history - which Simon once again attributed to the "[leasing] mix and the COVID deals that we did." We'll hear results from Tanger Outlets (SKT) after the close today.

Shopping Center: The strong quarter for shopping center REITs continued with strong results from Brixmor (BRX) and Kite Realty (KRG) yesterday afternoon. BRX traded flat today despite reporting that it collected 97% of Q2 rents - powering a 13.9% jump in same-store NOI growth - and raising its full-year growth outlook by 550 bps to 17.7%. KRG finished slightly lower today despite reporting that it collected 97% of Q2 rents - resulting in a 10.1% rise in same-Store NOI - and raised its FFO growth outlook by 150 bps to 2.3%. Whitestone (WSR) reports after the close today.

Net Lease: Realty Income (O) finished slightly higher after reporting strong results and raising its full-year FFO growth outlook by 280 bps to 5.0%. Realty Income - which collected 99% of Q2 rents - also boosted its 2021 acquisitions volume guidance to approximately $4.5 billion. National Retail (NNN) slipped despite reporting solid results and boosting its full-year growth outlook. NNN collected 99% of Q2 rents and raised its full-year FFO growth outlook by 160 bps to 18.5%. Spirit Realty (SRC) reports results after the close today.


Mortgage REITs

Per our Mortgage REIT Tracker available to The REIT Forum subscribers, residential mREITs finished lower by 0.2% today and are now off by 0.5% this week. Commercial mREITs gained 0.2% but remain lower by 0.3% this week. Ellington Residential (EARN) was among the laggards after reporting that its Book Value Per Share ("BVPS") declined by about 5% in Q2, snapping a stretch of strong BVPS gains in prior quarters beginning in Q3 of 2020. iStar (STAR) was among the outperformers after reporting Q2 results yesterday afternoon. As previewed in Mortgage REITs: High Yield Bargains, we heard earnings reports from 16 mREITs in the week ahead including results this afternoon from Western Asset (WMC) and Tremont Mortgage (TRMT).

REIT Preferreds & Capital Raising

Per the REIT Preferreds & Bond Tracker available to The REIT Forum subscribers, REIT Preferred stocks finished higher by 0.01% today, on average, and outperformed their respective common stock issues by an average of 0.33%. So far in 2021, REIT Preferred stocks are higher by 9.27% on a price return basis. The average REIT preferred pays a current yield of 5.98% and trades at a slight premium to par value.

Economic Data This Week

We have another busy slate of earnings reports and economic data in the week ahead, headlined by ADP Employment data on Wednesday, Jobless Claims on Thursday, and the BLS Nonfarm Payrolls report on Friday. Economists are looking for job growth of 900k in June, an acceleration from the 880k rate of job growth in June while the unemployment rate is expected to tick down to 5.7%. We'll also see Construction Spending data on Monday and a flurry of Purchasing Managers Index ("PMI") data throughout the week.

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Disclosure: A complete list of holdings and Real Estate and Housing Index definitions and holdings are available at HoyaCapital.com. Hoya Capital Real Estate advises an Exchange Traded Fund listed on the NYSE. Hoya Capital is long all components in the Hoya Capital Housing 100 Index.

Additional Disclosure: It is not possible to invest directly in an index. Index performance cited in this commentary does not reflect the performance of any fund or other account managed or serviced by Hoya Capital Real Estate. Data quoted represents past performance, which is no guarantee of future results. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy.

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